Standard Cost Accounting obscures the true Operational Picture

"[W]hen financial cost-focused accounting was adopted in the U.S. about 100 years ago, its promoters warned that it would not be a good tool for operational management. A growing body of experience at companies implementing lean accounting is showing that they were right. Too many vital decisions are based on standard cost accounting, which obscures the true operational picture."

Source:

http://www.forbes.com/2009/07/28/accounting-management-enterprise-technology-cio-network-accounting.html

Dan Woods is chief technology officer and editor of Evolved Technologist, a research firm focused on the needs of CTOs and chief information officers. He also consults for many of the companies he writes about. For more information, go to evolvedtechnologist.com.

"It was not enough to chase out the cost accountants from the plants. The problem was to chase cost accounting from my people's minds"

Taiichi Ohno, founding father of the Toyota Production System

Lean Accounting

As Activity-Based Costing more realistically reflects cost than Standard Cost Accounting can, it merely reflects existing processes. It takes some time and effort to change the cost model to reflect any process improvements.

Process improvement results from lean initiatives are typically poorly reflected through Standard Cost Accounting methods. Sometimes even leading to doubts in lean principles.

In my mind, Lean Accounting and Value Stream Costing are the natural outgrowth from advanced costing methods and lean thinking. Box scores that contain both operational and financial metrics lead to highly improved decision making.